Moody’s Investors Service’s general outlook for the Japanese cement sector is stable, with sector companies enjoying steady cash flow and market positions, as well as continued capital structure improvement, says the rating agency in a new report. However, aggressive overseas capital expenditure may slow further improvements, as it limits the free cash flow available for further debt reduction. 
 
The domestic market - which accounts for a large portion of Japanese cement companies’ total sales and profit - has been shrinking since 1990 due to Japan’s protracted economic stagnation and lowered public infrastructure investments. The companies’ sales have therefore decreased in recent years, although they have maintained operating profit margins through ongoing efforts to raise cement prices and intensive cost reductions - a trend that Moody’s expects to continue, notes the report, "Japanese Cement Industry Outlook." 
 
 "As the domestic market is likely to keep contracting, Japanese cement companies are looking to expand their businesses in growing overseas markets to boost intermediate-tem sales and profit," explains Kyosuke Kaji, Moody’s Associate Analyst and author of the report. "Since this is one of their primary growth strategies, their overseas exposures should continue to increase over the intermediate term." 
 
Moody’s believes this expansion will widen opportunities to increase revenues, although overseas contributions to overall free cash flow will not be substantial in the coming several years because of the associated planned capital expenditure.